One popular investing strategy is to buy stocks that look undervalued. The general principle here is that over time, the share price should correct and return to its fair value. So if I buy when the stock is cheap, a move higher to the ‘accurate’ value would represent a profit. With this in mind, here are some FTSE 100 stocks that have lost ground this year, that could be undervalued and therefore would make good buys for me.
Noting good and bad value
Firstly, it’s important to note that not all stocks that are in the red this year are undervalued. Some are understandably not performing well in the current environment. For example, the IAG share price is down 21% this year. With the issues swirling around Omicron, I think the airline operator has further tough times ahead. Recent restrictions in France for UK travellers highlight this. Therefore, the fall in the share price is warranted to accurately reflect the prospects for the company.
However, there are other FTSE 100 stocks that I don’t think this applies to. For example, Flutter Entertainment. The share price has fallen by almost 30% over the past year. Yet I recently wrote about why I’m thinking about buying at the moment.
The business is seeing strong growth in the US, with revenue for the first nine months of the year in that region being up 85% versus 2020. It has also recently bought an online casino business, something to diversify away from sports betting. Sure, it has risks associated around potentially tighter gambling laws in the UK. But I think the fall in the share price has been overdone.
Other FTSE 100 stocks I’m considering
Another company that I think is undervalued from this year is Standard Chartered. The share price has fallen over 8% this year, but I think the banking sector could outperform next year. Although it doesn’t have the exposure to the UK in the same way that Lloyds Banking Group or Barclays does, it makes the majority of profits from Asia and the Middle East. The growing wealth of Asia is a key sector. So I think the bank is well placed to do well in 2022, even if it misses out on some of the UK economic recovery.
A final FTSE 100 stock worth consideration for my portfolio is British American Tobacco. With a slump of 6% in the past year, the company is looking undervalued from a technical perspective. As earnings haven’t materially weakened, the falling share price has reduced the price-to-earnings ratio to 9.85. Any ratio below 10 is my general rule of thumb for being undervalued.
Clearly, a risk here is that BATS is going to struggle with the traditional tobacco market in years to come. Further, although it’s making an effort with ESG goals, it’ll still be shunned by many who negatively screen companies when trying to be ESG-friendly.
Overall, just because a FTSE 100 stock has lost ground this year, it doesn’t mean that I should ignore it. I’m putting all three on my watch list to consider buying in the new year.
The post 3 FTSE 100 stocks in the red this year that I’d buy for 2022 appeared first on The Motley Fool UK.
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Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Barclays, British American Tobacco, Lloyds Banking Group, and Standard Chartered. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.